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Senate Majority Leader Harry Reid, D-Nev., said Tuesday the chamber soon will consider a measure on repealing oil and gas industry tax breaks, a priority of President Obama’s.

“We’re going to do something on oil subsidies very, very soon,” Reid told reporters in the Capitol.

Obama recently urged both chambers of Congress to hold votes on repealing the tax breaks. It’s likely a non-starter in the GOP-controlled House, and even in the Senate such a measure probably wouldn’t overcome resistance from Republicans and oil-state Democrats.

Obama has said he wants to promote an “all-of-the-above” strategy — once a GOP buzzword — by boosting both conventional and alternative energy and improving efficiency of homes, vehicles and businesses. He has said it’s not fair that major oil companies are getting $4 billion a year in federal support when they’re making record profits all as consumers suffer at the pump.

But Republicans and industry groups oppose rolling back the tax breaks, saying that would harm oil and gas production the country needs.

American Petroleum Institute President Jack Gerard said those “subsidies” aren’t subsidies at all, but tax deductions of a type that benefit a wide range of businesses and industries.

“The president has it backwards,” Gerard said in a recent statement. “Our industry pays the government nearly $90 million a day.”

The GOP and industry have said the proposal serves as one of many examples of how Obama has contradicted his own “all-of-the-above” rhetoric. They point to his withdrawal of onshore leases, planned rules for hydraulic fracturing and other policies that they say have impeded domestic oil and gas production.

Obama has defended his record, insisting he has leased millions of acres for drilling while planning to hold many more lease sales offshore and onshore.

Additionally the White House has seized on a recent report from the Energy Information Administration that found U.S. oil production on federal lands and offshore has trended upward since Obama took office.

Republicans have responded that the production was in spite of Obama’s policies, not because of them.

“Has it ever crossed your mind to send a ‘Thank you’ note to President Bush for approving those leases?” Rep. Louie Gohmert, R-Tyler, told Bob Abbey, director of the Bureau of Land Management, the agency that oversees oil and gas drilling on federal lands, at a hearing.

Republicans have noted that oil production on federal lands and offshore dipped 14 percent from 2010 to 2011. The White House has pointed to the Gulf of Mexico spill and its aftermath — including the promulgation of tougher safety standards and a temporary deep-water drilling moratorium — as causing the decrease and said the general trend is upward.

Obama plans to take his recent speaking blitz across the country this week. He will speak at oil and gas production fields on federal lands outside Carlsbad, N.M., in one of four stops to tout the “all-of-the-above” platform.

With gasoline prices rising, Obama has ripped GOP proposals to vastly expand drilling as election-year “bumper sticker” rhetoric that wouldn’t help lower global oil prices. He has said his own plan of increasing oil production and reducing oil use would help the most in the long term and that no “short-term silver bullets” exist.

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Puneet Kollipara covers politics and the energy business from the Washington, D.C., bureau of the Houston Chronicle and Hearst. He holds a bachelor's degree in economics and physics from Washington University in St. Louis. Follow him on Twitter: @pkollipara

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8 Comments

Previously, the “tax break” they referred to was making special accounting rules, just for oil and gas companies, that would cause more taxes. The rest of the publicly traded non oil and gas companies would still use normal DD&A rules. This is nothing but borrowing from the future, as politicians like to do to help buy votes, since these proposed rules would raise more texas when oil and gas go up, but less is raised when those commodities go the other way, never mind creating a parallel universe of accounting and taxation. But then again, that is what our government is good at.

We need to stop subsidizing big oil companies. It does not matter if this is subsidy or tax break these multi-billion dollar industry does not need tax breaks of any kind. Oh yes they pay 90 million dollars a day to the government while they pocket billion dollars a day. Lets say the truth. Cutting the tax breaks on these behemoths would not hurt them one bit.

I don’t here anyone talking about taxing Google, Apple, Microsoft, who earn bbillions, and also have subsidies…You need to quit drinking the cool aid and look at the facts. See what the oil industry companies % rate of return compared to other industries. When you tax the oil industry you’re taxing middle americans who have their saving invested in mutual funds with energy conmpanies. Find another industry that pays $90 million a day in taxes? Reasonable people can disagree, but the debate should be based on facts, not hyperfily andpolitical nonsense coming out of the obama administration

The “subsidies” Obama likes to talk about are really manufacturing deductions just like every other manufacturer gets to claim for their taxes. It’s a deduction for costs incurred in the drilling of the wells, and it gets deducted when spent, just like every other deduction for manufacturers. There is nothing “special” about this deduction that applies only to “big oil companies.”

Harr1234 likes to think that this would not harm oil companies, and he’s right. People like Harr and the rest of us would be the ones harmed by removing these deductions.

When the deductions are removed (well, the change would be to require oil companies to amortize the deduction over some period of years) the investment return of drilling oil wells is reduced. This immediate expensing of intangible drilling costs provides a “cash saved” tax reduction that offsets some of the “cash out” for drilling the well. This makes the well pay back “after taxes” much sooner than it would otherwise on only the profits of the mineral sales. The sooner the oil companies “make back” their cash on the well, the sooner they can then invest that cash in the next well. If this payback is delayed, some investors will take their investments elsewhere in search of higher/quicker returns. Those that are left will be forced to drill fewer wells, as it takes longer to recover the invested cash. All of this results in less oil out of the ground, tighter supply, and ultimately higher oil prices. Econ 101.

The profits of the big oil companies will be unaffected. Any increase in their taxes will be passed along to consumers as higher prices.

Full disclosure: I am a CPA and an investor in working-interest oil well ventures.

harr1234 it is not a tax break or a subsidy. To put it simply, it is O&G companies having the ability to write off expenses when they occur rather than deducting them over time. To deduct something over time means it loses value over its life cycle or has a salvage value at some point. The expenses that O&G companies are deducting when they occur have no salvage value nor anything to deduct value against.

thank you for that detailed explanation Mark. My comment was under moderation when you posted. Now if your explanation could auto-repost on every article written and commented on about these “tax breaks,” maybe john q. public would have some understanding on this issue.

I agree with Mark Wagner. People who are bashing on oil companies should learn the basics of capitalism and taxation; that companies are in business to make a profit and expenses are passed onto customers. Stop drinking the O-koolaid and your mind will be free to think. What about GE paying no taxes on billions they made? And Apples sitting on $100 billions of cash? Do you want to pay $10 gas prices?

This country is dependent on oil from the Middle East because we can’t produce enough for people who are quick to criticize companies, especially oil co’s, WITHOUT knowing the facts!

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